LONDON — Britain’s economy will grow 1.5 percent this year owing to “significant headwinds” in 2011, the OECD said Wednesday in a downgraded forecast published one week before the country’s annual budget. The Organisation for Economic Co-operation and Development (OECD) said Britain’s recovery that began in late 2009 “faces significant headwinds during 2011, which can be mitigated by monetary policy remaining supportive.” The Paris-based policy and research body for governments of 34 leading economies praised the coalition’s bid to cut Britain’s huge deficit but said “recovery and job creation would both benefit from smaller-than-planned cuts in public investment.”
The OECD forecast British gross domestic product growth of 1.5 percent in 2011, down from a previous estimate of 1.7 percent. It predicted GDP of 2.0 percent in 2012, unchanged from the body’s November forecast. Finance minister George Osborne on Wednesday said his budget’s message would echo the OECD’s report — that “this government has set the right course for the British economy, but we have still much more to do.” OECD Secretary-General Angel Gurria added during the survey’s release in London: “By taking hard, though necessary, decisions now, the UK is ensuring that it can continue to provide the British people with effective government services in the future.
“To counter some of the negative impact, monetary policy should remain expansionary to support the recovery, even if headline inflation is currently above target.” In a bid to support recovery, the Bank of England (BOE) has kept its key interest rate at a record low 0.50 percent since March 2009 and has injected 200 billion pounds (235 billion euros, US$322 billion) into the economy. Interest rates “should rise only slowly from mid-2011 onwards as long as inflation expectations do not drift too far from the target,” it added. The BOE is maintaining record-low rates as soaring commodity prices pushed up British annual inflation to a two-year high of 4 percent in January, double the central bank’s target. The OECD meanwhile said that QE “should be withdrawn in an orderly and pre-announced fashion once policy rates have risen from their current low level.